02 August 2011

Things I Don't Get About Politics (Part 1 of an Eleventy-Billion Part Series)

Republicans keep arguing that fewer regulations and regulators propel business and economic recovery/growth.

  • I think this is probably true.  You can make more money if you don't have to worry about regulations on trade, environment, labor, occupational safety, benefits, liability insurance, etc.  This is why, say, Chinese factories can make Nikes and Adidas at a much higher rate than US factories can produce New Balance.  It's not that the Chinese factories are sweat shops per se (though undoubtedly some are); it's that they don't have the same environmental, occupational, or labor standards the US does.  But to me, that is a less appealing long-term solution.  

  • There are also ramifications for the small business folks--even if they don't want to admit it.  Let me use an example: the guy who works as an exterminator for the house we rent was complaining the other day about all the regulations on small businesses.  He has to have this permit and that licence...  I can kind of understand his frustration, but he's not looking at the big picture.  Without some sort of state and municipal control (licensing, permitting, etc.) he probably wouldn't be able to stay in business at all because any moron with a can of poison could call himself an exterminator.  In a free-for-all with no regulation, why would someone pick the "professional" exterminator who charges double what another exterminator charges?  You can scream caveat emptor all you want, but how many people know a professional exterminator from some screw-up?  In the end, municipal and state regulations minimize the impact of grifters and charlatans like William J.A. Bailey or James Davidson.  On a larger, federal, scale, however, regulations also protect guys like my exterminator.  If there were no environmental or occupational standards in place, then he could spray the most effective poisons to kill bugs--but those same poisons would likely harm his employees and my family.  What would happen?  In the short term, he'd be wildly successful.  In the long term he'd get hammered in court by employees and consumers harmed by his products or actions.  Then you'd get one (or more) of three outcomes: 1) he'd have to abandon harmful practices to avoid getting sued (leaving him in the same situation he's in right now except the self-regulation would be done inefficiently in the courts and there would be more human suffering...and way more lawsuits), 2) he'd start howling for some regulatory entity to tell him what was safe and what was harmful (I mean, what small business owner has the financial resources to do his own long-term testing?) and to establish a guideline of best practices, or 3) the smaller businesses would go under because they couldn't withstand the financial burden of frequent legal actions (remember, there'd be no regulating agency to point to and say "They told us it was OK!  It was state of the art!  If OSHA/EPA/FDA didn't know it was bad, how could we?" so civil cases would be wide(r) open).  That would leave only the larger businesses (who could more easily fight cases) and shady businesses (who would change names, corporate identities, etc. to avoid prosecution) controlling the market.  That's not good for the little guy, and it's definitely not good for as a consumer. 

  • This is not to say that all regulation is a good idea.  I mean, I can't even get unpasteurized milk from a local rancher delivered to town.  I have to go and get it myself because the state of Oregon thinks unpasteurized milk is a bigger threat to me than, apparently, Chinese toys made of with lead.  Unpasteurized milk.  You know, the stuff everyone drank from the neolithic period until, oh, about 1920.  Yeah, that's a priority.  (NB: I'm not arguing there's no need for pasteurization and USDA regulation of it, but small farms with fewer than 100 head, get real.  You go to them because you want to.  That's almost in the "artisan" range.)  Or what about this.  Everyone's up in arms about vaccines: if more upper-class white people don't make their kids get vaccines, then we get what's going on right now, 118 cases of the measles!  Oh.  118?  That's not great, but it's not bad enough to warrant this.  It's certainly not as bad as thalomid, which the FDA rightfully quashed before it got going in the US.  But these are, as a friend once said, champagne problems.  They seem to be the price one pays to avoid having a car that bursts into flames or "investing" with a scam artist to avoid eating Durham's Pure Leaf Lard without knowing knowing that each block has the inactive ingredient, Lithuanian Factory Worker #2.  But it doesn't make them less annoying.

  • But reducing regulation to increase economic growth also ignores another significant down-side: more frequent and more severe recessions.  In the 82 years since the 1929 market crash, there have been 14 recessions/depressions.  They took up 16.5 years (roughly 1/5 of that time span) and the Gross Domestic Product dropped an average of 5.15% in every one.  That sounds bad...until you look at the 82 years before 1929.  In those years, there were 21 recessions/depressions.  They took up about 35.5 years (roughly 2/5 of that time span...twice as long as the following 82 years).  The numbers are harder to compare since there aren't firm GDP figures for the early ones, but wikipedia (yeah, I know) gives the drop in "business activity" averaging 22.39% for each one.  Say what you will about FDR "socializing" his way out of the Great Depression with the New Deal, but the Fair Labor Standards Act of 1938 (which brought us the 40-hour week and time-and-a-half), the Securities Exchange Act of 1934 (which gave us the SEC), and the Glass-Stegall Act of 1933 (which gave us the FDIC and which, if it hadn't been dismantled by the Gramm-Leach-Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000, would have helped prevent the current banking crisis).  These were moderating influences on American business and industry.  Moderating.  It means that the point of these laws and agencies is to moderate, and that works both ways.  They are meant to help us avoid brutal recessions/depressions, but in order to do that, they also have to slow growth.  You have to sacrifice the booms in order to avoid the busts.  That, I agree, is not at all sexy, but there's nothing sexy about long-term growth (but, then again, there's nothing sexy about having invested bundles in an online grocery delivery service without ever really knowing if it was viable).  It's also how professional poker players make money: the play within their bankroll.
For next time, I'll hammer on the Democrats some: Why do Democrats vilify Republicans for deregulation when they are just as involved in it?  (And why don't Republicans mention this?)

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